Sheet 3 First Year
Sheet 3 First Year
Tegara English
First year
SECOND TERM
inventories and Chapter
the cost of goods
sold
8
Edited by Dr/ Magdy Kamel
Tel/ 01273949660
1 | Page Dr. Magdy Kamel
Chapter (8)
Inventories & the cost of goods sold
There are three methods of recording purchases & sales under different prices.
Example
Ahmed Company uses the Periodic Inventory System, the following transactions show
beginning inventory & purchases of Product No.M25 for the month of July.
Solution
Data
Ending Inventory = 4,000
Comments
Case (1)
If the purchase price is going up (increase) using FIFO method will increase the net
income Because the cost of goods sold under FIFO is low
While using LIFO will decrease the net income because the cost of goods sold is high
If the purchase price is going down ( decrease) using LIFO method will increase the net
income because the cost of goods sold is low
while using FIFO will decrease the net income because the cost of goods sold is high
Prepare journal entries to record the cost of the 80 portex laptops sold on may 10,
assume that merlin computers uses the:
a. specific identification method (50 of the units sold were purchased on april 9,
and the remaining units were purchased on may 1).
b. average cost method.
c. FIFO method.
d. LIFO method.
Discuss briefly the financial reporting differences that may arise from choosing the FIFO
method over the LIFO method.
Solution
Cost Of Goods Sold 80 Units
because the prices are going up ( increase ) using FIFO leads to increase the amount of
profit because the cost of goods sold under FIFO is lower than the cost of goods sold
under LIFO
1. determine the cost of the ending inventory based on each of the following methods of
inventory valuations:
a. average cost
b. FIFO
C. LIFO
2. which of the above methods if any results in the same ending inventory valuation
under both periodic and perpetual costing procedures.
Solution
Notes
Total unit = 10,000
Ending Inventory = 1,600 Units
Units Sold = 10,000 – 1,600 = 8,400 Units
Notes
Using FIFO Method results in the same ending inventory valuation under perpetual &
periodic system because the cost of ending include the recent price
2. Using the FIFO inventory method, the amount allocated to cost of goods sold for
June is
a. $ 49,500
b. $ 42,000
c. $ 43,000
d. $ 50,000
3. Using the average-cost method, the amount allocated to the ending inventory on
June 30 is
a. $ 16,000
b. $ 15,500
c. $ 14,000
d. $ 12,000
4. The inventory method which results in the highest gross profit for June is
a. the FIFO method.
b. the LIFO method.
c. the weighted average unit cost method.
d. not determinable.
7 | Page Dr. Magdy Kamel
Use the following information for questions 5–7.
At May 1, 2008, Treeline Company had beginning inventory consisting of 100 units
with a unit cost of $7. During May, the company purchased inventory as follows:
200 units at $7 each
300 units at $8 each
The company sold 500 units during the month for $12 per unit. Treeline uses the
average cost method.
5. The average cost per unit for May is
a. $7.00.
b. $7.50.
c. $7.60.
d. $8.00.
8. How many units did the company sell during January, 2008?
a. 80
b. 120
c. 200
d. 280
9. If the company uses FIFO, what is the value of the ending inventory?
a. $520
b. $600
c. $656
d. $1,424
10. If the company uses LIFO, what is the value of the ending inventory?
a. $520
b. $600
c. $656
d. $1,480
11. If the company uses FIFO and sells the units for $10 each, what is the gross profit
for the month?
a. $1,376
b. $1,424
c. $2,800
d. $3,000
13. Using the FIFO inventory method, the amount allocated to cost of goods sold for
July is
a. $580.
b. $620.
c. $1,380.
d. $1,420.
14. Using the LIFO inventory method, the amount allocated to cost of goods sold for
July is
a. $580.
b. $620.
c. $1,380.
d. $1,420.